In financial management, cash is king!
Whether it is a big business or an SME, managing your operating cash flow is key to the success of any business. While this is true, a significant number of businesses, and to be precise 33%, do not even have a tool to help them manage their cash flow. That is why you will find that some businesses are profitable, but will at some point run out of cash.
If you spend so much of your working capital, you may experience delays paying salaries, buying raw materials, or even paying the suppliers. These delays can cause major problems in your business, and cash flow management is the key to avoid them.
In this article, you will discover the seven recommended tips to manage your cash and ensure success for your business.
1. Make Good Use of Your Cash Flow Tool
Managing cash flow manually, is almost impossible. That is why you need a tool to help you do it. Both free and premium tools are available in the market. Choose the one that works best for you.
One way you can take advantage of your cash flow tool is by managing your days cash at hand. Most people will just look at the balance in their checkbook and make financial decisions without knowing whether they can afford it or not. The truth is, this can compromise your ability to cover some necessary expenses that may arise in the future. To avoid this, you need to know your exact cash at hand days.
Lucky for you, cash flow tools have two dashboards KPIs that can help you with this:
- Cash at hand: here you will see the total amount of money you have in your bank accounts and all deposited funds, if there are any.
- Day’s cash at hand: here you will see the total number of days the cash is available for, considering the expenses, and assuming that there will be no new sales.
2. Understand all Your Terms of Payment
If you have contracts with your customers, you need to understand that different contracts have different terms of payment. To avoid cash flow problems, make sure you understand the payment terms for each contract, see what you can handle, and negotiate better terms for what you cannot handle.
3. Monitor Your Expenses
It is not uncommon for business expenses to pile up fast and cause some financial strain. And especially today, most expenses are usually charged on the company card, which is done annually and forgotten until the next annual billing. The bigger your company is, the more the expenses, and the higher your chances are of having duplicated expenses. Also, think about unexpected spikes in your bills or even any unexpected bills. How will you manage your cash flow and avoid disappointments?
You need to keep a close eye on all your expenses so that you can keep the necessary ones and cut off whatever is unnecessary. Monitoring your expenses will also ensure that you are aware and ready for any other unplanned expenses that may arise.
4. Improve on Your Sales
It goes without saying that making sales is the best way to get cash. So to improve your cash flow, monitor your monthly sales, and find ways to improve your performance.
5. Focus on Growing Your Clientele
Businesses need customers to make sales, and as we said above, you need more sales to improve your cash flow. If your business relies on sales from a few customers like most small businesses do, losing just one customer can really harm your business. To minimize such risks, you need to focus on growing your clientele and increase your revenue.
6. Ensure Timely Payments to Your Vendors
Most business owners only focus on making timely payments to their customers, forgetting that vendors too, want to be paid quickly. Paying vendors too early or too late can harm your cash flow. You can only delay the payments for as long as necessary. Ideally, you need to stretch payments for as long as possible as you try to meet the terms and conditions of your contract but not too long. Your cash flow tool will help you determine the average time you can stretch without compromising your relationship with the vendors, your good image, and your business cash flow.
7. Understand Your Future Cash Flow
Preparedness is very important to the success of any business. And in this case, it means understanding your future cash flow. This will help you understand where your business is heading financially. Ideally, you should have a 6-months forecast, and your cash flow tool will help you with that.
Your business can run into cash flow problems if:
- You are not keeping enough cash reserve
- You do have a cash flow plan
- Your business is growing too fast. Funny how that works! Your own success could be the source of your problems
- You do not monitor your cash flow properly
- Poor pricing
However, with these tips, you can effectively manage your cash flow and ensure that your business is efficient in its operations.